Effects of the CEO-NEO Relative Pay in Lieu of Financial Recovery

     Chief executive officer compensation has increased exponentially in the last twenty years. This trend has led to public criticism of corporate pay structures as unfair to the average worker. Still, others cast the CEO... [ view full abstract ]

     Chief executive officer compensation has increased exponentially in the last twenty years. This trend has led to public criticism of corporate pay structures as unfair to the average worker. Still, others cast the CEO as a superstar of value creation, one who is deserving of a hefty paycheck. While there is considerable literature on relative CEO pay, there has yet to be a consensus on what is “fair”. This study theorizes that close working relationships lead to greater awareness of inequity when it is present, increasing the likelihood of adverse decision-making. Given that upper management interacts with the CEO more frequently than the average employee, this paper concentrates on the relationship between CEO and other top executives in the firm. Following firms in the S&P 500, performance and value metrics are tested to show how the ratios of compensation between the CEO and top executives affect productivity during the years following the 2008 financial crisis.